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ALA Public Policy Advocacy—Hawaii Annual Conference and Product Exhibition

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ALA Public Policy Advocacy

ALA Public Policy AdvocacyHawaiiAnnual Conference and Product Exhibition

Hawaii is center of supportSenator SchatzSenator HironoCongresswoman GabbardCongressman TakaiLong tradition of supportSenator InouyeSenator Akaka

Hawaii is center of supportLynchpin of Pacific logistics170,000 military patrons50 percent savingsSITREPDoD is targeting the commissary appropriation in its 2015 budget submission, reducing $322 million of the $1.4 billion annual appropriation in 2016, and $1 billion in 2017, leaving it with $400 millionThe proposal is direct reduction to military compensation and is inciting fierce opposition.Exchange programs are under stressOn-base business model threatened

System is strong but fragile and vulnerableConvergence of factors all at once could destroy itState of playAdministration recommended a $322 M cut for Fiscal 16 that begins October 1.Congress pushed back. HASC, HAC, SAC Problem is SASCAccepted the Pentagons $322 M cut. Three provisions to transfer costs to patrons and one provision to privatize the largest stores including Pearl Harbor.

Convergence of exchange challengesSDT and base operations fundingProduct and pricing restrictionstobacco (CVS), beverage alcoholWage hikes (minimum and SCA)Shrinking force structureCommissary as destination Commissary category encroachment (legislative proposal)Off-base competition

Key questionsIs the Government going to shut down this year?Is the commissary system going to exist next year?What about funding for commissaries?How will sales be effected?Whats going to happen to the employees?Are commissaries and exchanges going to merge?Are exchanges going to merge?Whats going to happen to my business with exchanges and commissaries?Whats my Association doing about it?What can I do to help?

DoDSustain the benefit and its core deliverables Charter an oversight Board Adopt best commercial practices Operate more like a business Do not merge the system at this time

MCRMCCreate a Defense Resale SystemSingle organization single leader, single Board, phased transition Maintain core commissary/exchange benefitsCommissary groceries and essential items sold at cost Create a business environment that supports implementation of best practices Migrate DeCA from an APF organization to a NAF organization

BCGEstablish an overall Resale Command Implement variable pricing and private label at DeCA Implement regional market pricing Test modest price increases to Brand Name Products Consolidate Exchange Backroom FunctionsConvert DeCA to a NAFIConsolidate DeCA and Exchange Backroom functions.

Is the Government going to shut down this year?

Is the commissary system going to exist next year?

What about funding for commissaries?How will sales be effected?

Whats going to happen to the employees?

Are commissaries and exchanges going to merge?

Are exchanges going to merge?

Whats going to happen to my business with exchanges and commissaries?

Whats my Association doing about it?

What can I do to help?

AdvocatingBriefing the merits of the exchanges in the East Wing and West Wing. Got the President of the United States and the First Lady to cite the resale system, including, exchanges for their work to support military people.Raised the profile of military exchanges with the White House.Increased the recognition of military exchange contributions to the military with the Chairman and ranking members of all key Congressional Committees including Defense Authorizations and Defense Appropriations.Initiated and launched the Coalition to Save our Military Shopping Benefits to increase patronage and galvanize affinity group and patron support against threats.Worked to gain Authority in the NDAA to allow exchanges to borrow from the Treasury to finance operations.Worked with House Armed Services Committee, Ways and Means, Senate Finance Committees to repeal the 3 percent withholding requirement.Worked to get relief on interchange fees in the Dodd-Frank bill.Worked to turn back and discredit the following:

The Congressional Budget Office recommendation on consolidation of commissaries and exchanges, price increases, and commercially redeemable vouchers. It also results in price increases, primarily for retirees.Findings of the Bowles Simpson Deficit Reduction Commission to reduce commissary and exchange funding and raise prices to patrons.. S 277 as discharged by the full Senate Veterans Affairs Committee to provide benefits for injured military personnel at Camp Lejeune, North Carolina. The bill payer was the commissary and exchange benefit.Senator Tom Coburn (R-WV) Back in Black report that recommended consolidation of commissaries and exchanges and price increases as part of a $9 trillion deficit reduction proposal.An amendment proposed to the 2014 National Defense Authorization Act to consolidate and increase prices.Protecting tax immunityInternet tax immunityProtecting FAR immunity & fighting other restrictionsProtecting MWR NAF siphoning to support legitimate appropriated fund requirementsProtecting status of NAF workforce--health care, pensionsProtect private & public sector mixFighting for freedom of choiceAlcohol & Tobacco restrictionsDietary supplementsSugarFight supply chain impedimentsSupport open most efficient sourcing and resist unreasonable local sourcingSupport keeping commissaries open to drive exchange trafficFighting the Bangladesh provisionProtecting second destination appropriations and appropriations in other categoriesAdvancing Federal Financing Bank authority for exchange debtASER reliefResisting outright privatization initiativeExpanding patronage in cyber and brick and mortar--VeteransShareholders have a voiceThe system belongs to the troops

2016 Defense budget request$322 million cut to DeCA$183 million in reduced operating costs$139 million in efficiencies2016 Defense budget requestScheduled store closures: $27.3M Labor reduction of 200 FTEs (10.9 percent of above store level support): $18.8M Transportation efficiencies of fresh fruits and vegetables to the Pacific: $40.8M (assumes contract start date by January 1, 2016, but is subject to change based on ACTUAL contract start date) Cancellation of case lot sales events: $900KElimination of subsidy to six overseas NEXMARTs (Navy Exchanges that sell specific lines of commissary goods at cost): $3.0M

2016 Defense budget requestClose stores on holidays: $4.5MReduce operating hours: $29.5MReduce days of operation (includes direct labor and contract labor reductions): $58.2M Major impacts of reducing days and hours of operation include:Reduction of 1,480 FTEs (in addition to the 200 above store level FTEs set forth above)Reduces the average number of employees per store to 45 a reduction of 6 per store

2016 Defense budget requestDays of operation per week would be reduced at 183 stores: 30 stores would go from being open 7 to 5 days per week; 47 stores would decrease from 7 to 6 days a week; and 106 stores from 6 to 5 days a week. Examples of reduced hours and days include:Kaneohe Bay Marine Corps Base Hawaii would have its weekly operating days and hours reduced from 7 days and 60 hours per week to 5 days and 49 hours per week; Fort Irwin, California, reduced from its current posture of 7 days and 62 hours per week to 5 days and 42 hours per week; Minot Air Force Base, North Dakota, reduced from its current 6 days and 66 hours per week to 5 days and 42 hours per week; and Yokosuka Naval Fleet Activities, Japan, reduced from its current 7 days and 75 hours per week to 5 days and 50 hours per week.Second and third order of effects include:Larger crowds and longer checkout linesPotential decrease in exchange sales: According to the Army and Air Force Exchange Service, approximately 20 to 30 percent of military exchange traffic is directly tied to customers visiting the commissary 2016 Defense budget requestAn additional $139M reduction.Including the cost of transportation of commissary goods shipped overseas in the price of the goods (second destination transportation (SDT))--$100M Shifting the funding source for commissary operating supplies from the Defense Working Capital Fund (DWCF) to the commissary surcharge. --$39 M2016 Defense budget requestAuthorize the collection of a fee for service for value-added commercial practices (online ordering/shopping and curb-side pickup).Authorize the collection of a fee for the use of single-use plastic and paper bags (incentivizing patrons to supply their own reusable bags, or pay for a fee for each plastic or paper bag furnished at checkout).Authorize a demonstration project to contract out the operation of the produce department (currently, six produce contractors supply fresh fruits and vegetables to commissaries across the United States. Under this proposed demonstration project, two of the produce contractors would also operate the produce departments of the commissaries they supply. This would be the equivalent to contracting out the operations of those produce departments).

2016 Defense budget requestIf the Department continues to pursue a $1B reduction in appropriated fund support of DeCA, more robust legislative relief is required to: (1) eliminate the current sale-at-cost model, allowing items to be sold at a markup; and (2) enable additional revenue generation by authorizing the sale of additional goods and services that are commonly available in commercial grocery stores, such as beer and wine, a variety of gift cards, greeting cards, and seasonal items. DeCA also would need additional legislative relief to run more like a business without the current statutory constraints. 2016 Defense budget requestEliminate the current sale-at-cost model.Authorize markup of product and establish sales prices of products to off-set appropriated fund operating costs.Authorize the sale of all items (except distilled spirits), sold by commercial supermarkets, to generate revenue to off-set operating costs.Use cost recovery as a primary criteria in establishing and closing commissaries in non-remote U.S. locations.Authorize purchase of goods from whatever source has the best price.Modify the Berry Amendment to authorize the purchase of operating supplies necessary to process products (e.g., meat trays) and protective clothing in overseas areas from non-U.S. sources.Exempt the provision of goods and services for Defense Retail Systems from the application of the Service Contract Act.

2016 Defense budget requestEliminate the current sale-at-cost model.Authorize markup of product and establish sales prices of products to off-set appropriated fund operating costs.Authorize the sale of all items (except distilled spirits), sold by commercial supermarkets, to generate revenue to off-set operating costs.Use cost recovery as a primary criteria in establishing and closing commissaries in non-remote U.S. locations.Authorize purchase of goods from whatever source has the best price.Modify the Berry Amendment to authorize the purchase of operating supplies necessary to process products (e.g., meat trays) and protective clothing in overseas areas from non-U.S. sources.Exempt the provision of goods and services for Defense Retail Systems from the application of the Service Contract Act.

Compensation CommissionRecommendation 9: Protect both access to and savings at Department of Defense commissaries and exchanges by consolidating these activities into a single defense resale organization.

Compensation CommissionWould decrease DoD budgetary costs and Federal outlays by $1.0 billion during FY 2016FY 2020 and result in annual steady-state savings of $515 million by FY 2021. Reductions result from a series of efficiencies, primarily in consolidating back office functions, logistics systems, and staffing.Studies have projected that both financial savings and nonfinancial benefits can be achieved through a consolidation of the three exchanges.51 Including the commissaries in such a consolidation increases potential efficiencies. Proposes a new defense resale executive team that would be responsible for evaluating, selecting, and implementing these potential efficiencies. Realized costs and savings therefore depend upon the set of efficiencies selected for implementation.

Compensation Commission

A single organization should be established that consolidates DoDs commissaries and three exchange systems into a single defense resale system, herein referred to as the Defense Resale Activity (DeRA). Compensation Commission

A DeRA Executive Director should be appointed who reports to a consolidated and simplified BOD. The BOD should replace the boards that currently oversee each of the separate exchange systems and DeCA. The consolidated DeRA BOD should also assume the responsibilities of the Executive Resale Board and the Cooperative Efforts Board and should incorporate expertise from private-sector retail. Supporting committees should be established and empowered as needed. Compensation Commission

A DeRA executive team, along with operational advisors from the current organizations, should immediately be established to define the key attributes of the new organization and plan the transition. Creation of a single organization should facilitate consolidation of many back-end operation and support functions, alignment of incentives and policies across commissaries and exchanges, as well as consistent implementation of best practices for aligning with the needs of Service members and the Military Services. Compensation Commission

Core commissary and exchange benefits should be maintained at military installations around the world by continuing the sale of groceries and essential items at cost (plus a surcharge) and other merchandise at a discount. Under the combined organization, some or all commissary staff could be converted from APF to nonappropriated funds (NAF) employees to reduce commissary employee costs.Compensation Commission

The branding of the current exchange systems and commissaries initially should be retained. A director for each of these branded exchange systems and the commissaries should be appointed under the DeRA Executive Director. These directors should oversee operation of these systems as needed to represent the unique needs of each military service. Personnel evaluations for these executives should be cosigned by the DeRA executive director and appropriate Service representatives. Branding and organizational structure can be modified over time by the BOD.

Compensation CommissionDeRA should assume responsibility for the operation of exchanges but not the other organizations currently managed by NEXCOM and MCCS. If approved by the BOD, the current points of integration and shared resources can be maintained through liaison positions and formal memoranda of agreement. For example, if it is mutually advantageous to share support staff between DeRA and Marine Corps MWR, options are available to continue the arrangement that currently exists with the MCX.

Compensation CommissionLaws and policies should be updated to reflect this consolidated structure and allow greater flexibility related to how products are sourced, where they are sold, and how they are priced, as noted below:Allow the sale of convenience items in commissaries at a profit, including products and services typically found in commercial grocers. Food and other essential items should continue to be sold at cost when sold in commissaries or combined commissary and exchange stores (excluding convenience stores). This expanded commissary product line would include beer and wine, but those sales must align with DoDs efforts to deglamorize alcohol and reduce its abuse.

Compensation CommissionAllow for the payment of second destination transportation costs with NAF. Allow significant flexibility on local sourcing overseas, particularly when it is beneficial to the Service member.Allow more flexibility in the creation of combined stores, as currently controlled by Section 2488 of Title 10 of the U.S. Code.Allow the use of the commissary 5 percent surcharge for similar expenses in the exchanges. Conversely, allow the use of exchange profits to cover commissary costs currently covered by the surcharge.

Compensation CommissionA portion of Military Service MWR programs should continue to be funded from DeRA profits. The BOD should approve the amount of net revenue to be contributed as MWR dividends and should ensure an equitable distribution among the Military Services.

Compensation Commission10 U.S.C. 2481 should be amended to make clear that commissary and exchange stores may be combined into single stores, and that commissary stores or the commissary sections of combined stores must still sell grocery items at reduced prices. It should also state that the Secretary of Defense will designate the defense resale systems executive director and the DeRA BOD described above.10 U.S.C. 2483 should be amended to authorize the defense resale system to receive appropriated and nonappropriated funds, and to use nonappropriated funds generated by the system to cover the expenses of operating the system.

Compensation Commission10 U.S.C. 2483 should be amended to authorize the defense resale system to receive appropriated and nonappropriated funds, and to use nonappropriated funds generated by the system to cover the expenses of operating the system.10 U.S.C. 2484 should be amended to state that the commissaries requirement to sell items at reduced prices should be limited to the following categories of items: (A) Meat, poultry, seafood, and fresh-water fish. (B) Nonalcoholic beverages. (C) Produce. (D) Grocery food, whether stored chilled, frozen, or at room temperature. (E) Dairy products. (F) Bakery and delicatessen items. (G) Nonfood grocery items.

Compensation Commission10 U.S.C. 2485 should be amended to establish the DeRA BOD described above, granting the Secretary of Defense the authority to establish the board, which should include five voting membersa senior representative from each Military Service and the Under Secretary of Defense for Personnel and Readinessas well as nonvoting members with experience related to logistics military personnel and entitlements, and other relevant areas. The section should also be amended to allow the Secretary to assign a limited number of active-duty Service members to the defense resale system, when necessary, including to serve as the Executive Director.

Compensation Commission10 U.S.C. 2487 should be amended to eliminate references to the separation of commissaries and exchanges and disestablish the Defense Commissary Agency.U.S.C. 2488, which sets forth limited conditions under which commissary and exchange stores may be combined, should be repealed.

DoD report to Congress on MCRMCWith some legislative relief, possible to maintain benefit while realizing efficiencies.No merger of exchanges and commissaries at this time. Develop a business plan.Complex ecosystem of complementary programs, products, and services with world-wide reach.Defense Resale Business Operating BoardResponsibilities of existing boards would conform to DRBOBConvert commissary employees to NAF

DoD report to Congress on MCRMCEnable the commissaries and exchanges to function on a consistent (if not common), and more business-like, platform Extending the finance and accounting optimizations to DeCASharing logistics networks and/or procurement processes and technologyHarmonizing human resources management across the exchange systemsLeveraging the exchange systems merchandising and pricing processes in building up DeCAs capabilitiesWorking with the Treasury Department to remove barriers to use of Military Star and the Exchange Credit Program (ECP) within the commissary system

DoD report to Congress on MCRMCDevelop cross-cutting strategic initiatives and tactical actions to further reduce the commissary systems reliance upon appropriated funding, sustain foot traffic between the commissary and exchange systems (which is vital to the long-term viability of the latter). Board would play a key role in assessing the possibility of any future proposal to consolidate resale stores or to merge the commissary and exchange systems into a single organization and developing a business case for such a proposal, if appropriate. DoD report to Congress on MCRMCThe Department recommends that clear lines be drawn between authority of the existing boards to address policy issues such as profit policy, and the authority of the DRBOB to address business practices.The Department recommends that, in lieu of the current pricing mechanism, the commissaries should be required to achieve a fixed level of savings to the customer, based on real-time regional comparisons of prices for representative market baskets of goods against lowest-price nearby competitors.

Boston Consulting Group StudyDetermine the qualitative and quantitative effects of: Using variable pricing in commissary stores to reduce the expenditure of appropriated funds to operate the defense commissary system;Implementing a program to make available more private label products in commissary stores;Converting the defense commissary system to a nonappropriated fund instrumentality; andEliminating or at least reducing second destination funding.

Boston Consulting Group StudyThe impact of changes to the operation of the defense commissary system on commissary patrons, in particular junior enlisted members and junior officers and their dependents, that would result from displacing current value and name-brand products with private-label products; and (B) reducing or eliminating financial subsidies to the commissary systemThe sensitivity of commissary patrons, in particular junior enlisted members and junior officers and their dependents, to pricing changes that may result in reduced overall cost savings for patrons.

Boston Consulting Group StudyThe feasibility of generating net revenue from pricing and stock assortment changes The relationship of higher prices and reduced patron savings to patron usage and accompanying sales, both on a national and regional basis. The impact of changes to the operation of the defense commissary system on industry support; such as vendor stocking, promotions, discounts, and merchandising activities and programs.

Boston Consulting Group StudyThe ability of the current commissary management and information technology systems to accommodate changes to the existing pricing and management structure.The product category management systems and expertise of the Defense Commissary Agency.The impact of changes to the operation of the defense commissary system on military exchanges and other morale, welfare, and recreation programs for members of the Armed Forces.

Boston Consulting Group StudyThe identification of management and legislative changes that would be required in connection with changes to the defense commissary system.An estimate of the time required to implement recommended changes to the current pricing and management model of the defense commissary system. Report by September 1, 2015.

Boston Consulting Group StudyALA developing position paperConfidential documentfirst peekConvince patrons that paying more is good for themDeCA incurs loss on each transactionIncreased salesincreased appropriationsCost plus 5 prevents DeCA from having a clear pricing strategy to compete with private sector15-20 percent savings instead of 30 percentDeCA must comply with regulations that drive up labor and acquisition costs.

Boston Consulting Group StudyExchanges more flexible contract and personnel frameworkDeCA must operate small remote stores that are not economically sustainableLimited in products that may be soldDeCAs overall business model and regulatory constraints result in competitive disadvantages that effect bottom line.

Boston Consulting Group StudyImprove merchandising & reduce COGS--$110-$165 MReduce Capex--$80M-$120MPrivate label--$60M - $120MConvert to NAF--$95 M - $155 MAdjust labor mix--$10M-$25MLocal sourcing--$50 MLocal source quick win--$5M-$10MReduce goods not for resale cost--$10M-$15M

Boston Consulting Group StudyIntroduce private label, increase price and keep margins to fund operationsReduce # of national brandsBuild relationships and improve terms with manufacturersIntroduce private labelSimplify shelf spaceBoston Consulting Group StudyPatrons reported that with a 5% price increase, they would shift 30% of their spend at DeCA elsewhere.Boston Consulting Group StudyConsolidating exchanges would generate $175-$265M annually. Consolidating DeCA back office would save another $40-$65 MConsolidate BoDsPhase 1move from cost plus 5 pricingPhase 2Convert DeCA to NAFExchanges service DeCAs back office functions and begin to merge commercial activities such as merchandising and supply chainTread with caution on BCG recommendationsBCG took a straight business approach and not a benefit approach.Did not address many of the questions posed by Congress.Several of the business assumptions used by BCG were flawed.Congress should not take down price protections until the assumptions are validated and true impact is known.Tread with caution on BCG recommendationsDeCAs Relative Size in the Grocery Business Incremental Category Authorization with MarginDeCA utilization of a third party contractor to deliver products to its US retail storesChanging DeCAs business model form a cost+ to a margin business modelRetailer requirement to spend significant resources on developing, managing and promoting their private label brands

Tread with caution on BCG recommendationsDeCA receives, in some cases, better pricing than retail because 100% of promotional monies are currently passed along to customers. This situation is not always the case with a retailer working on margin. The net effect is DeCAs COG is lower than it would be in a margin business model like retail outside the gate.Five percent price increase = 30 percent sales decrease.Tread with caution on BCG recommendationsgrossly underestimates the complexity of its proposals, and the danger of the transition plan it has proposed DeCA is not a modern supermarket chain but a Federal Agency delivering an element of non-pay compensation BCG treats DeCA as an established supermarket chain and recommends the immediate implementation of sophisticated retail programs.

Tread with caution on BCG recommendationslook specifically at the recommendations for variable pricing, private label, and regional pricing in light of DeCAs capabilities and position in the market place. DeCA is a relatively small player in the grocery industry (1%-2% of US sales)DeCA is too small to manage a private label programDeCA buyers do not have accountability for pricing, inventory management or cost control DeCA buyers have never managed pricingDeCA has no system in place that can manage system or regional pricing

Tread with caution on BCG recommendationsRegional pricing normalizes savings but ignores a critical retail factor or regional cost of living.Currently 60% of DeCAs item offering make it to the shelf through an industry support anomaly vendor stocking"BCG does not account for the cost associated with losing industry support of implementing private label DeCAs supply chain is managed by a network of third party distributors Private label addition may require a separate supply chain to be established

Tread with caution on BCG recommendationsDeCA currently enjoys best pricing available commitment through its ordering contracts 100% pass through of promotional dollars provides optimum Cost of Goods (COG) Requirement to price, promote and position private label adds a news cost tier to Cost of Goods and erodes existing industry support. If DeCA is to operate as a supermarket that product restrictions would need to be lifted putting DeCA in direct competition with the exchanges.

Tread with caution on BCG recommendationsAs a Federal agency, DeCA is a quasi-social services organization supporting key programs like small and disadvantaged business, The National Institute for the Severely Handicapped, the National Institute for the Blind. DeCA has had a leadership role in key Administration programs like Joining Forces and Healthy Eating. In the retail world this all goes away.

Tread with caution on BCG recommendationsThe BCG report does an excellent job of detailing the internal operating changes that need to be made to DeCA to position it as a retail operator However, in its phasing recommendation it proposes implementing complicated retail programs before the organization, systems and expertise are in place to manage these sophisticated programs.

Distract and Divide

Your business is our businessParticipation in ALA these days is not optional.it is necessary part of your business and an investment that returns many fold in many ways.Your investment in ALA proved its worth in 2014Participation in ALA yields real, tangible benefits for your business. Furloughs and closures averted by 11 days resulting in hundreds of millions of dollars in sales that would not have otherwise occurred.$200 million cut in 2015 would have resulted in $3 billion lost sales and $600 million cut in 2016 would have resulted in $6 billion in lost sales. Averted major issues that could have impacted exchange ability to earn revenue and contribute MWR dividends. Averting hundreds of millions in lost sales.

Keep your seat at the table2015 is going to be a pivotal yearThings are going to change and a lot of balls are going to be thrown up in the air. Need pull the cart where you want it to go instead of getting dragged behind it.Active participation in ALA ensures that your interests are represented in decisions that are g0ing to be madeDecisions on product availability reverberate in commercial sectorStrength in NumbersTable is going to be set this coming year.Help your Board of Directors reach out to sign up companies in the Association.Help demonstrate to policy-makers that the power of industry is behind us.American Logistics AssociationLogistics is our middle nameManufacturers, Distributors and Brokers represent 95 percent of the supply chainHave a hand and a voice in what happensCan help agency partners get to where they need to get

Mobilizing for fiscal 2016Educating members of Congress.Input to multiple reportsWorking with Compensation CommissionGathering more data

Outreachdont lobby ourselves80 briefings to Senate and HouseEconomic reportMore underwayFrame the argument and shape the debateBlunt new normalSupport our friends, educate adversariesCoalition and patron involvementEnergizing advocacy groups Grass rootsMoving resale to top priorityCongressional CaucusMessaging economic, compassionate, missionDoD outreachmilitary and civilian

ALA positions on the budgetThe Pentagon has a budget problem but the resale system is part of the solution and not part of the problem.ALA positions on the budget and the CommissionBudget proposal will wreck cherished benefitsBudget is a shell game stacked with illusory savingsHits those who need it mostfamiliesfixed income retireesTransfers costs to the exchanges and attempts to balance the commissary benefit on the back of the exchanges

ALA position on the budget and the Commission findingsApplaud the Commission for recognizing the value of the benefitsKeep protections and budget intact until proof is presentedIf it aint broke, dont break itConsequences will reverberate across the base commerce ecologyMWR, exchanges, base support servicesALA positionPuts at risk $500 million in annual industry support.Eliminates $300 million in patron co-paysPuts at risk $500 million in dividends from exchanges to military community programs.Still requires DoD to underwrite overseas and remote location operations but eliminates the supply chain and economies of scale.

ALA position percent of compensation costs1 fifth of a percent of tot DoD budget2 percent of the DoDs health care budget.Yet one of the most valued benefits. Patrons have financed billions of dollars in facilities. System is nearly fully capitalized. Helps keep cost of living allowance costs low.

ALA positions on budgetSystem has already cut no more cuts-inherently efficientStop irresponsible dialogue with factsno more new normalAs a vital compensation program, should be exempt from cuts.For Sequestration, these programs should not be cut disproportionately beyond the minimum reductions that are mandated by law.Certainly should not be singled out for major reductions or ill-advised experimentation or reengineeringThe resale system is inherently efficient with DeCA alone reducing its annual operating costs nearly $900 million a year. These programs are part of the solution not part of the problem as our report Costs and Benefits of the Military Resale System demonstratestheir contribution to the Defense Department far outweighs their costs by a factor of 6:1.ALA positions on budgetNonappropriated funds and surcharge funds are generated by charges to military personnel and their families. These funds should not be siphoned off in a convoluted shell game to pay for legitimate appropriated fund obligations that have been set forth by Congress over the years.NAF balance sheets should not be used to balance the budget on the backs of the troopsALA position on the budgetThere should be no commissary reductions beyond the over $700 million a year in annual reductions that have already been taken out of the commissary budget (includes the $46 million in the just-passed Omnibus FY 2014 Appropriations Act, and the $500 million inventory savings from outsourcing distribution.Commissaries are one of the few DoD programs that has held costs constant; in FY92 constant dollars, commissary appropriations have actually declined since 1992. The primary purpose military families use the commissary is the savings offered, they will stop coming when the savings go away.

ALA position on the budgetThis is an earned benefit, not just a store. Commissaries and exchanges are a community hub and bring the military together. Food inflation is expected to double this year.Would greatly impact DoDs efforts to promote healthy lifestyles.DoD may say the stores will remain open but the practical effect of the appropriations reductions will be that the stores in the U.S. will close.Cutting commissaries is punishing success. These operations have already cut spending while other Defense programs continue to increase.

ALA position on the budgetThe cuts will reduce the current 30 percent savings to zero and the stores in the U.S. would close.Economies of scale would be lost for remaining overseas stores and costs and prices would rise. There are huge unknown consequences such as cascading impact on military PX operations and on-base community support programs, loss of U.S. supply infrastructure to support remote and overseas operations.Commissary cuts would demoralize the military at a time when there is so much uncertainty over the entire compensation package and force structure cuts.

ALA position on the budgetDoD says that commissaries will not have to pay rent or taxes under their proposal. Commissaries should not have to pay rent anyway on stores built and maintained with patrons funds. The military is already exempt from taxes under the Supremacy clause of the Constitution. If you shut down the stateside hub stores, the supply chain will lose economies of scale and prices overseas will rise as well.Commissaries support the Defense mission including DoD efforts to promote healthy lifestyles.

ALA position on the budget Insufficient analysis/study of the consequences of the reductionsCommissary is an earned benefit in recognition of service.Reductions to the commissary benefit are out of proportion to the reductions that are shared by other Defense program.

ALA position on the budgetCommissary patrons have built billions of dollars in facilities with their five percent surchargeFood inflation is expected to double in the coming yearRepresent a partnership between the public and private sector, taking advantage of a private sector supply chain that contributes an additional $500 million a year ancillary support to the military.Represent a partnership between the beneficiaries and the DoD with these beneficiaries offsetting nearly 20 percent of the operating costs.Provide a tremendous amount of no-cost compensation to the Department through state and local tax savings for beneficiaries valued to the Department at nearly $300 million.

ALA position on the budgetPower military household income with$2.8 billion in price savings and another $250 million in income for family members who work there. Is a cherished and well-used benefit with 90 percent of active duty families using it last year and over 98 million customer transactions. Large operations in the United States anchor and indirectly underwrite operations in remote and overseas areasequalizing the benefit no matter where our people serve.Are a flexible benefit that expands and contracts with the size of the force structure with nearly 150 of the stores closed corresponding with successive rounds of BRAC and force realignment over the years.

ALA position on the budgetHave a declining budget, with funding for the benefit remaining stable and dropping in real terms during the Defense budget ramp-up and even when the number of eligible beneficiaries increased. Allow the Department to economize on cost-of-living allowances and personnel and operating costs in other areas such as direct pay and transportation. Commissaries support multiple Administration objectives including: hiring of Veterans and family members, supporting military quality of life; providing minority and small business opportunities; and opportunities for the blind and severely disabled. The Defense Commissary Agency is one of the few organizations in the Department that has been able to produce a clean financial statement, a major objective of the DoD.

109Benevolence and Good WillWounded WarriorsSnowball ExpressJoining ForcesFisher HouseUSONMFACause promotionsand a multitude of others

Rational AccessMilitary personnel are entitled at least to the same rights and privileges as the citizens they are charged to defend.Sectors have inherent challengesJust in past year:ConcessionsTobaccoAlcoholSupplementsEnergy drinksSugarHealthy foodsALA positionMilitary folks are entitled to the same shopping rights and privileges as the citizens they are charged to defend.Products that are legal in the general civilian market should be available to military personnel.From a practical standpoint, we find that if legal consumer products are regulated on base, it merely forces the troops to go off base. If the military wants to control consumption of any product, it has to be a behavioral change, not an access change.

2015 Congressional CaucusJune 10Rayburn House Office BuildingThe premiere event on the politics & policy of resaleMembers of CongressDefense expertsPentagon and Administration Officials

ALA & ResaleProtecting the Benefit